Nokia Pulls Billions In Business From Contract Manufacturers

EL SEGUNDO, CANokia has announced that it has stopped using outside contract manufacturers for the assembly of its phones. The company cited weak global demand for mobile devices as the reason that it will cease employing outsourced production to electronics-manufacturing-service (EMS) providers and original design manufacturers (ODMs).

Recently, Nokia had begun the process of shifting some of its assembly operations away from contract manufacturers and back inside the company, according to Adam Pick, Principal Analyst for EMS/ODM at iSuppli Corp. In 2008, Nokia outsourced approximately 17 percent of the manufacturing volume of its mobilephone engines, which include the phone and software that enable its basic operations. They were outsourced to providers including Foxconn International Holdings, BYD, Elcoteq, and Jabil Circuit. "This doesn't help the eroding EMS/ODM industry," Pick emphasizes. "Nokia's pull-back will shed more than $5 billion in revenue from electronics contract manufacturers. That means more overcapacity, more headcount reductions, and obviously more problems."

iSuppli's current forecast calls for the EMS/ ODM market to contract 9.9 percent in 2009 to reach $270.8 billiondown from $300.7 billion in 2008. However, given Nokia's announcement, iSuppli will downgrade its forecast for 2009 and the following years. The Figure presents iSuppli's current global EMS/ODM revenue forecast. While the announcement is bad news for the contract-manufacturing and mobile-handset businesses, some think it represents a positive commentary on Nokia's capability to adjust to changing market circumstances.